Exhibit (10)
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT is made this 9th day of August, 1995, between SHARED
MEDICAL SYSTEMS CORPORATION (the "Company") and XXXXXX X. XXXXXXX ("Employee"),
who is a member of a select group of management or highly compensated employees
within the meaning of section 201(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
The parties hereto, intending to be legally bound, agree as follows:
1. Grantor Trust; Deferred Compensation Account.
--------------------------------------------
The Company has established an irrevocable grantor trust (the "Trust")
within the meaning of section 671 of the Internal Revenue Code of 1986, as
amended (the "Code"), pursuant to a trust agreement (the "Trust Agreement")
executed on August 9, 1995 with a trustee selected by the Company (the
"Trustee"). Concurrent with the execution of this Agreement, the Company will
contribute to the Trust 16,576 newly-issued shares of Company Common Stock
("Original Shares") by delivery of such Shares to the Trustee.
The Trustee shall, on behalf of the Company, hold a deferred
compensation account for Employee (the "Deferred Compensation Account" or the
"Account"). The Account shall have two sub-accounts, the Stock Account and the
Cash Account. The Trustee shall hold the Original Shares in the Stock Account.
Any stock dividends, stock splits, and other non-cash distributions received on
the Original Shares shall be held in the Stock Account, while any cash dividends
received on the Original Shares shall be held in the Cash Account and shall be
invested in accordance with investment guidelines established by the Company.
The Accounts shall also be reduced for distributions made under the terms of
this Agreement.
Notwithstanding the foregoing, the Trust assets shall be treated as
assets of the Company and shall remain, in the event the Company becomes
Insolvent (as such term is defined in Section 5(a)(i) of the Trust Agreement)
subject to the claims of the Insolvency Creditors (within the meaning of Section
5(a)(ii) of the Trust Agreement) of the Company. Employee shall not have any
property interest in the assets held in the Trust. Employee shall have only the
rights of an unsecured creditor against the Company for any distribution due
under this Agreement, and this Agreement shall constitute a mere promise by the
Company to make such distributions in the future. It is the intention of the
parties that the Agreement be unfunded for Federal income tax purposes and for
purposes of Title I of ERISA.
2. Entitlement to Benefits.
-----------------------
(a) Benefits at Normal Retirement.
-----------------------------
Upon the termination of Employee's employment with the Company
occurring on or after the Employee attains the age of 60 (his "Normal
Retirement Age"), Employee shall be entitled to receive and shall have
distributed to him the balance in his sub-accounts, as provided in Exhibit
A.
(b) Termination Before Normal Retirement Age.
----------------------------------------
If Employee's employment with the Company is terminated for any
reason prior to his Normal Retirement Age, Employee shall not be entitled
to receive any amount in his Account, and no distributions shall be made to
Employee, except under the following circumstances:
(i) Disability.
----------
If Employee's termination of employment results from his
permanent disability prior to his Normal Retirement Age, Employee
shall be entitled to receive and shall have distributed to him the
balance in his sub-accounts, as provided in Exhibit A. Employee shall
be deemed "permanently disabled," only if he can no longer perform the
duties of his position, as determined by the Management and
Compensation Committee of the Company's Board of Directors, in his or
their sole discretion.
(ii) Death.
-----
If Employee's termination of employment results from the
Employee's death prior to his Normal Retirement Age, Employee's
beneficiary designated pursuant to Section 3(b) below shall be
entitled to receive within 30 days of Employee's death and shall have
distributed to him or her the balance in Employee's sub-accounts, in a
lump sum.
(iii) Discharge After Age 50.
----------------------
If Employee is discharged by the Company for any reason
other than "cause" after he reaches age 50 but prior to his Normal
Retirement Age, the balance in his sub-accounts shall be reduced to
the balance in his sub-accounts as of his date of termination
multiplied by the Adjustment Fraction. For purposes of this
subsection only, "Adjustment Fraction" shall mean a fraction, the
numerator of which shall be the number of full months the Employee
worked for the Company after attaining age 50, and the denominator of
which shall be 120. The balance
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in his sub-accounts shall be distributed to the Employee, as provided
in Exhibit A.
As used herein, the term "cause" shall mean Employee's (A)
dishonest or illegal conduct, (B) conduct contrary to the best
interests of the Company, (C) insubordination, incompetence,
misconduct, or neglect of his duties, or (D) willful violation of any
express direction of the senior management or the Board of Directors
of the Company, as determined by the Management and Compensation
Committee of the Company's Board of Directors, in his or their sole
discretion.
(iv) Change in Control.
-----------------
(A) Acceleration of Account.
-----------------------
If, prior to Employee's Normal Retirement Age, (aa)
there is a "Change in Control" of the Company, (bb) the Chief
Executive Officer of the Company immediately prior to the Change
in Control is replaced, and (cc) within 3 months subsequent
thereto Employee is discharged by the Company or Employee resigns
because his place of work is changed such that his commute would
be increased by 50 miles or more or his responsibilities or his
aggregate compensation is reduced, Employee shall be entitled to
receive and shall have distributed to him the balance in his sub-
accounts, as provided in Exhibit A.
(B) Definition.
----------
As used herein, the term "Change in Control" shall mean
the acquisition by any person (other than the Company or any
affiliate or associate of the Company), as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), of beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of 40% or more
of the combined voting power of the Company's then outstanding
securities, or the approval by the stockholders of the Company of
(aa) any merger or consolidation where stockholders of the
Company immediately prior to the merger or consolidation do not
immediately thereafter hold more than 50% of the combined voting
power of the surviving company's then outstanding securities,
(bb) a liquidation or dissolution of the Company, or (cc) a sale
of all or substantially all of the Company's assets.
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(c) Forfeiture of Benefits.
----------------------
Notwithstanding the foregoing, if at any time after the
date hereof, Employee, without the express written consent of the
Company, manages, operates, or controls, or becomes an officer,
director or employee of, or consultant to, any business or
enterprise determined by the Company to be engaged in the
manufacture, distribution or marketing of any product, or the
provision of any service, substantially similar to or in
competition with any product or service offered by the Company,
Employee shall forfeit all rights to receive any benefits under
this Agreement, and no distributions under this Agreement shall
be made to Employee, or continued to be made, as the case may be.
(d) Acceleration of Payments.
------------------------
Notwithstanding any other provision of this Agreement
or the Trust Agreement, if the Company's independent public
accountants determine, based on a change in the tax or revenue
laws of the United States of America, a published ruling or
similar announcement issued by the Internal Revenue Service, a
regulation issued by the Secretary of the Treasury or his
delegate, a final decision by a court of competent jurisdiction
involving the Employee, or a closing agreement involving the
Employee made under section 7121 of the Code that is approved by
the Commissioner, that the Employee has recognized or will
recognize income for Federal income tax purposes with respect to
benefits that are or will be payable to the Employee hereunder,
before they otherwise would be paid to the Employee, the Company
shall discuss with the Employee appropriate measures to eliminate
a negative economic impact on the Employee, including if approved
by the Company, an immediate distribution by the Trustee from the
Trust to the Employee or Beneficiary of the amount so taxable.
3. Beneficiaries.
-------------
(a) Death of Employee Entitled to Benefits.
--------------------------------------
If Employee dies after becoming entitled to benefits
under Section 2(a) or 2(b)(i), 2(b)(iii) or 2(b)(iv), the balance
then in his Account, shall, within 30 days of Employee's death,
be distributed in a lump sum to Employee's beneficiary designated
pursuant to Section 3(b) below.
(b) Beneficiary Designation.
-----------------------
Employee shall have the right to designate a
beneficiary or beneficiaries to receive any benefits hereunder
which may be distributed upon Employee's death. Employee
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shall have the right to change any beneficiaries so designated,
provided, however, that a change of a beneficiary designation
will be effective only if made in a manner acceptable to the
Company. If Employee fails to designate a beneficiary or if no
designated beneficiary survives the Employee, his estate shall be
his beneficiary.
4. Claims and Appeals Procedure.
----------------------------
The Company has provided to the Employee a copy of the
Claims and Appeals procedures which will be followed under this Agreement
and which are incorporated herein by reference.
5. Non-alienation.
--------------
No benefits under this Agreement shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge, or
encumbrance, and any attempt to do so shall be void and unenforceable. Such
benefits shall not be subject to or liable for the debts, contracts,
liabilities, engagements, or torts of Employee or his beneficiary or
beneficiaries.
6. Investment Purposes.
-------------------
Unless the Company has theretofore notified Employee that a
registration statement covering Shares deposited with the Trustee has
become effective under the Securities Act of 1933 and the Company has not
thereafter notified Employee that such registration is no longer effective,
it shall be a condition of this Agreement that any Shares to be distributed
to Employee hereunder shall be acquired for investment and not with a view
to distribution in violation of the Securities Act of 1933 (or of any rules
or regulations promulgated thereunder), and Employee hereby agrees to
submit to the Company a certificate of such investment intent, together
with such other evidence supporting the same as the Company may request.
The Company shall be entitled to restrict the transferability of any Shares
distributed hereunder to the extent necessary to avoid a risk of violations
of the Securities Act of 1933 (or of any rules or regulations promulgated
thereunder) or of any state laws or regulation. Such restrictions may, at
the option of the Company, be noted or set forth in full on the Share
certificates.
7. Amendment or Termination of Agreement.
-------------------------------------
This Agreement may be amended or terminated upon the mutual
agreement of Company, by resolution of the Management and Compensation
Committee of its Board of Directors adopted at a duly held meeting of said
Committee or by unanimous written consent of said Committee, and Employee.
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8. Authority to Interpret Agreement Vested in Company.
--------------------------------------------------
The Company shall have full power and authority to interpret,
construe, administer and make factual determinations with respect to this
Agreement, and the interpretation and construction thereof, and actions
thereunder, including any valuation of the Deferred Compensation Account,
or any decisions regarding the amount or recipient of any distribution to
be made therefrom, shall be binding and conclusive on all persons for all
purposes. The Company shall not be liable to any person for any action
taken or omitted in connection with the interpretation and administration
of this Agreement unless attributable to its own willful misconduct or lack
of good faith.
9. No Contract of Employment.
-------------------------
Nothing contained herein shall be construed as conferring upon
the Employee the right to continue in the employ of the Company.
10. Right to Withhold.
-----------------
The Company and the Trustee shall have the right to withhold from
all distributions under the Agreement any Federal, state, or local taxes
required by law to be withheld with respect to such distributions.
11. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania to the extent not
preempted by federal law.
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12. Agreement Binding.
-----------------
This Agreement shall be binding upon and inure to the benefit of
the Company, its successors and assigns, and Employee and his heirs,
executors, administrators and legal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first above written.
ATTEST: SHARED MEDICAL SYSTEMS CORPORATION
[SEAL]
/s/ X.X. Xxxx By: /s/ R. Xxxxx Xxxxxxxx
------------------- -------------------------
Assistant Secretary R. Xxxxx Xxxxxxxx
Chief Executive Officer
WITNESS:
/s/ Xxxx X. Xxxxxxxxx /s/ Xxxxxx X. Xxxxxxx
--------------------- ----------------------------
Xxxxxx X. Xxxxxxx
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Exhibit A
I. Distribution of Benefits.
------------------------
(a) Timing of Distributions.
-----------------------
Distributions pursuant to Section 2(a) shall be made in 20 annual
installment payments, commencing on a date no later than 30 days after the date
of Employee's termination of employment. Distributions pursuant to Sections
2(b)(i), 2(b)(iii), and 2(b)(iv) shall be made in 20 annual installment
payments, commencing on a date no later than 30 days after the date the Employee
reaches his Normal Retirement Age. Annual installments shall be distributed on
the anniversary of the first such distribution.
(b) Amount of Distributions Under Sections 2(a) and 2(b)(i).
-------------------------------------------------------
For each installment payment made pursuant to Sections 2(a), 2(b)(i)
and 2(b)(iv), the Employee shall receive (i) an amount (payable in Shares, or
with respect to non-cash assets other than Company stock, in kind) equal to the
percentage of the Original Shares (and the stock dividends, stock splits and
other non-cash distributions deemed received on the Original Shares) as
indicated for the installment under II below, and (ii) cash in the amount of
$18,400. In the event that the amount of cash to be distributed in an
installment exceeds the current balance in the Cash Account on the date of such
distribution, then the amount of the cash distribution shall be limited to the
balance in the Cash Account on such date. In the event that the balance in the
Cash Account on the date of the last installment is greater than $18,400, then
the entire balance in the Cash Account shall be distributed with such last
installment.
Fractional Shares shall be disregarded in computing the amount of
distributions hereunder. All applicable taxes shall be withheld from
distributions under the Agreement.
(c) Amount of Distributions under Section 2(b)(iii).
-----------------------------------------------
For each installment payment made pursuant to Section 2(b)(iii), the
Employee shall receive (i) an amount (payable in Shares, or with respect to non-
cash assets other than Company stock, in kind)) equal to the percentage of the
Original Shares then remaining in the Stock Account, as provided in Section
2(b)(iii) (and the stock dividends, stock splits and other non-cash
distributions received on such remaining Original Shares) indicated for the
installment under II below, and (ii) cash in an amount equal to (aa) $18,400,
multiplied by (bb) the Adjustment Fraction set forth in Section 2(b)(iii). In
the event that the amount of cash to be distributed in an installment exceeds
the current balance in the Cash Account on the date of such distribution, then
A-i
the amount of the cash distribution shall be limited to the balance in the Cash
Account on such date. In the event that the balance in the Cash Account on the
date of the last installment is greater than the amount of cash determined
pursuant to subclause (ii) of the preceding sentence, then the entire balance in
the Cash Account shall be distributed with such last installment.
Fractional Shares shall be disregarded in computing the amount of
distributions hereunder. All applicable taxes shall be withheld from
distributions under the Agreement.
II. Distribution Schedule.
---------------------
Percentage of Original Shares
-----------------------------
Installment (and other assets in Stock Account) Distributed
----------- -----------------------------------------------
#1 8.8%
#2 8.2%
#3 7.6%
#4 7.0%
#5 6.5%
#6 6.0%
#7 5.6%
#8 5.2%
#9 4.9%
#10 4.7%
#11 4.4%
#12 4.2%
#13 3.9%
#14 3.7%
#15 3.6%
#16 3.4%
#17 3.3%
#18 3.2%
#19 3.0%
#20 2.9%
----
Total: 100%
A-ii
Exhibit (10)
1995 SMS Senior Management
Incentive Compensation Plan
for
Xxxxx Xxxxxxx
Senior Vice President, US Customer Operations
Plan Year: 1/1/95 - 12/31/95
-----------------
Unit: Health Systems Division (HSD)
-----------------------------
---------------------------------------------------------------------
Approved by: /s/ Xxxxxx X. Xxxxxxx Date: 8-16-95
---------------------------------------------------------------------
Title: President and COO
---------------------------------------------------------------------
---------------------------------------------------------------------
Received by: /s/ Xxxxxxx X. Xxxxxxx Date: 8-16-95
---------------------------------------------------------------------
Title: Sr. Vice President, US
Customer Operations
---------------------------------------------------------------------
Xxxxx Xxxxxxx
1995 ICP
I. Compensation Components
-----------------------
The compensation paid to participants in this plan is comprised of base
salary and incentive compensation. The base bonus for this Incentive
Compensation Plan is $100,000.
II. Summary of ICP Components
-------------------------
The objective of this Incentive Compensation Plan (ICP) is to compensate
the plan participant in direct proportion to his/her contribution to the
maximization of the sales, revenue and profit of the Health Systems
Division and SMS, and their achievement of certain general management
challenges. The definitions of these performance indicators are contained
in attachment A. The ICP is composed of the following:
----------------------------------------------------------
Performance Indicators SMS Bonus
----------------------------------------------------------
Sales $ 27,000 27%
----------------------------------------------------------
Revenue $ 18,000 18%
----------------------------------------------------------
Profit $ 45,000 45%
----------------------------------------------------------
Total Performance Bonus *90,000 90%
----------------------------------------------------------
General Management Challenge Bonus 10,000 10%
----------------------------------------------------------
Total Bonus $100,000 100%
----------------------------------------------------------
*Balanced Performance Bonus -- an additional 10% of the calculated Performance
--------------------------
Bonus will be earned if the targets for all three (3) of the Performance
Indicators above are achieved or exceeded.
The actual bonus payments for the Performance Indicators will be determined
using the related factor column in Attachment B as a multiplier of bonus values
for each of the three (3) Performance Indicators.
III. Specific Measurement of ICP Components
--------------------------------------
The ICP will be based on the achievement of the assigned objectives.
1
Xxxxx Xxxxxxx
1995 ICP
General Management Challenges
-----------------------------
A bonus of $10,000 will be paid for performance against the following General
Management challenges:
* 1. Success of Quality Cycle
2. Completion of New Sales and Service Structure to Address Market Change
* 3. Development of Management Succession Plan
4. Implementation of Competitive Sales Program
5. Success of Chicago CHIN
* 6. Progress on Convergence Plans
* General Management Challenges for all HSD Leadership Team Members
Bonus Computation
-----------------
Performance against the General Management challenges and corresponding bonus
payments will be determined by your immediate Manager.
None of the above listed bonus components will be considered earned unless the
participant is an employee on March 31 of the year following the plan year, or
at the time of payment if prior to that date.
IV. ICP Payment Policies
--------------------
A. Incentive compensation earned under this plan will be paid by March
31, 1996 or as soon as possible thereafter.
B. Participants who enter the plan during the year or after the plan year
start will receive prorated payments based on the percentage of months
the participant was in the plan during the year.
C. There are no draws under this plan.
D. The maximum bonus payout under this plan is three (3) times each
performance indicator or three (3) times the bonus in paragraph I
above. If these maximums are exceeded due to special circumstances, a
senior management review will occur.
E. This plan may be adjusted for changes in business conditions such as
abnormal or unusual business events or non-fulfillment of job duties.
F. At management's discretion, up to 20% of the earned bonus may be paid
in restricted stock.
2
Xxxxx Xxxxxxx
1995 ICP
ATTACHMENT A
DEFINITION OF TERMS
-------------------
Sales
-----
The present value of the new software sold as stated in SMS contracts and
reported in the Monthly Sales Report. (To be included in the Sales Report the
contract must be dated and signed by the customer and SMS.)
Revenue
-------
Operating revenue plus gross hardware sales less the cost of hardware sales, as
reported by Accounting.
Profit
------
Revenue (as defined) less direct (including all bonus costs of this plan) and
overhead expenses, as reported by Accounting.
Health Systems Division (HSD)
-----------------------------
Health Systems Division includes the following organizations:
. The former Hospital Systems Division
. Radiology
. Decision Support Systems (DSS)
. Physician Services Division (PSD)
. Healthcare Data Exchange (HDX)
. Laboratory Products Division (LPD)
SMS
---
SMS includes all domestic operations. It does not include SMS Europe.
3
Xxxxx Xxxxxxx
ATTACHMENT B 1995 ICP
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PERFORMANCE PERCENTAGE % SALES REVENUE PROFIT
==================================================
90 0
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91 0.19
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92 0.36
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93 0.51
--------------------------------------------------
94 0.64
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95 0.75 0
--------------------------------------------------
96 0.84 0.36
--------------------------------------------------
97 0.91 0.64
--------------------------------------------------
98 0.96 0.84
--------------------------------------------------
99 0.99 0.96
--------------------------------------------------
100 1.0 1.0 1.0
--------------------------------------------------
101 1.001 1.005 1.02
--------------------------------------------------
102 1.003 1.02 1.08
--------------------------------------------------
103 1.007 1.045 1.18
--------------------------------------------------
104 1.013 1.08 1.32
--------------------------------------------------
105 1.02 1.125 1.5
--------------------------------------------------
106 1.029 1.18 1.72
--------------------------------------------------
107 1.039 1.245 1.98
--------------------------------------------------
108 1.051 1.32 2.28
--------------------------------------------------
109 1.065 1.405 2.62
--------------------------------------------------
110 1.08 1.5 3.0
--------------------------------------------------
111 1.10 1.605
--------------------------------------------------
112 1.115 1.72
--------------------------------------------------
113 1.135 1.845
--------------------------------------------------
114 1.157 1.98
--------------------------------------------------
115 1.18 2.125
--------------------------------------------------
116 1.205 2.28
--------------------------------------------------
117 1.231 2.445
--------------------------------------------------
118 1.259 2.62
--------------------------------------------------
119 1.288 2.805
--------------------------------------------------
120 1.32 3.0
--------------------------------------------------
121 1.353
--------------------------------------------------
122 1.387
--------------------------------------------------
123 1.423
--------------------------------------------------
124 1.461
--------------------------------------------------
125 1.5
--------------------------------------------------
126 1.541
--------------------------------------------------
127 1.583
--------------------------------------------------
128 1.627
--------------------------------------------------
129 1.673
--------------------------------------------------
130 1.72
--------------------------------------------------
131 1.769
--------------------------------------------------
132 1.819
--------------------------------------------------
133 1.871
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134 1.925
--------------------------------------------------
135 1.98
--------------------------------------------------
136 2.037
--------------------------------------------------
137 2.095
--------------------------------------------------
138 2.155
--------------------------------------------------
139 2.217
--------------------------------------------------
140 2.28
--------------------------------------------------
141 2.345
--------------------------------------------------
142 2.411
--------------------------------------------------
143 2.479
--------------------------------------------------
144 2.549
--------------------------------------------------
145 2.62
--------------------------------------------------
146 2.693
--------------------------------------------------
147 2.767
--------------------------------------------------
148 2.843
--------------------------------------------------
149 2.921
--------------------------------------------------
150 3.0
--------------------------------------------------
4
